Recently, the Topps Company was bought out by a group of private investors headed by former Disney Chief Executive Officer (CEO) Michael Eisner. The Tornante Co. LLC paid just over $385 million dollars for the number two card maker (second to Upper Deck). Topps was bought out not only for its sports card market. Most collectors do not know that Topps is also the producer of candy/confectionery (Bazooka Bubble gum), Pokemon Cards, Wizkids and Comic Books.

Was this buyout a good buy? For a private company maybe, but not for the small time investor.

A few years ago, I used to teach a series of investing classes. I would show my students how to buy stock, bonds and mutual funds. The main teaching points were to find the best investment for your money by doing research, looking at financials and making common sense examples. Let’s do that with Topps and a few other publicly traded companies.

Taking a look at the Topps Company financials shows a lot of negative information.

  • Ticker Symbol: TOPP
  • Buyout Price: $9.75 a share or $385 million
  • Price-to-earnings ratio: 52
  • Earnings Per Share: $0.19
  • Dividend/Yield: $0.16/1.60%

So, what do all these numbers mean?

The price of a share of stock really means little. Comparing the companies earnings to the size of the company, debt, cash and position in the market mean much more.

As of this article Topps is valued at $386.27 million and the share price is at $9.98. If you divide the market cap by the share price, you can find out how many shares the company has outstanding (386.27 million / $9.98 = 38,704,409). So, roughly, Topps has 38.7 million shares on the open market that were bought by The Tornante Co (NOTE: They probably already owned many shares before the buyout). Let’s continue.

Short term Topps Stock has already gone up $0.23 ($9.98 – $9.75) or
$8.9 million. Not bad for a weeks return for its newest owners. So, why should investors avoid Topps stock?

First, it is the long-term that any potential investors in Topps stock should pay attention to. Topps price-to-earnings ratio is 52 (earning $0.19 a share at $9.98 a share). That means if you buy Topps stock today you are paying $52 for every $1 the company earns. This would be fine if the company was increasing sales and profits (more on this later). To put it in perspective Microsoft Stock is at 23 price-to-earnings and Cisco Systems is at 25. The Tornante Company is paying twice the price for Topps stock than for a company like Microsoft the worlds biggest software maker and Cisco the worlds leader in networking. They must either think they can make Topps double its share price over the next few years or be buying the Topps name.

Next, Topps is expected to grow fast by some analysts, but looking at their balance sheet tells me differently. The companiy’s revenues and net income have declined each year for the past 3 years and gross profits have basically remained unchanged. Take a quick look at their cash flow and you will see after all is said and done money flows out of Topps, not in. This leads me to believe the company is foolish to issue a dividend when they are not even making a profit.

In my view there are much better companies in the sports card market to invest in. Since Upper Deck, Beckett Media and Krause Publication (Tuff Stuff) are private companies and Donruss is owned by General Mills, you will have to stick to the companies mentioned below.

FULL DISCLOSURE*: I do NOT hold stock in any of these companies at the time this article was written.

RC2 Corporation (Ticker: RCRC) – BUY

 

Most people know RC2 Corporation as the company that bought Press Pass and the maker of diecast. What people don’t know it that they are much bigger than Topps ($839 million to $385 million) and a better value for investors. The company is a better value at $39 a share compared to Topps $9.98. The company’s price to earnings ratio is 25 (half of Topp’s 52) and RC2 is earning $1.60 a share. Of note, the company recently announced a buy back of $75 million of shares. This means the company feels that its shares are at a low value and you should too. Recommendation: Buy this stock in small blocks each month.

Collectors Universe (Ticker: CLCT) – HOLD

 

Most people know Collectors Universe as Professional Sports Authenticator or PSA. The company is known to most sport card collectors for their grading that is on par with Beckett’s Grading Service (BGS). They also grade and authenticate rare coins, U.S. paper currency, stamps, sports memorabilia and autographs. If you have a collectible that needs authenticating, Collectors Universe does it. They are also big outside of collectible in diamonds and other gemstones. Additionally, they publish the Sports Market Report, Stamp Market Quarterly and Palmieri’s Market Monitor. The company is much smaller that Topps at $114 million, but pays a bigger dividend (3.5%). The company’s revenue has been growing and operate at a positive cash flow. Recommendation: If you own this stock hold it. If you are looking to buy it wait for a better entry point under $13.

A good way to buy stock is directly from the company. Almost every publicly traded company offer Dividend Re-Investment Programs or DRIPS. This means you can set up a weekly or monthly payment for as little as a few dollars a week or month and own stock in these companies. You can request an investors information kit through collectors universe here and one through RC2 here. You can also call RC2 at (630)573-7200, then press 2. Ask about their DRIP programs!

*Sports Card Forum is not responsible for any losses these stocks may experience